00_fm1_pi-xxx

6/10/08

9:49 AM

Page i

RETAIL BUYING

00_fm1_pi-xxx

6/10/08

9:49 AM

Page iii

Retail Buying
From Basics to Fashion Third Edition
Richard Clodfelter

University of South Carolina

Fairchild Books, Inc. New York

00_fm1_pi-xxx

6/10/08

9:49 AM

Page iv

Director of Sales and Acquisitions: Dana Meltzer-Berkowitz Executive Editor: Olga T. Kontzias Acquisitions Editor: Jaclyn Bergeron Senior Development Editor: Jennifer Crane Art Director: Adam B. Bohannon Production Director: Ginger Hillman Associate Art Director: Erin Fitzsimmons Senior Production Editor: Elizabeth Marotta Project Manager: Patricia Shogren Copyeditor: GEX Publishing Services Cover Design: Adam B. Bohannon Text Design: Charles B. Hames Layout: Jack Donner Copyright © 2008 Fairchild Books, Inc., A Division of Condé Nast Publications Second Edition Copyright © 2003 Fairchild Publications, Inc. First Edition Copyright © 1993 Delmar Publishers, Inc. All rights reserved. No part of this book covered by the copyright hereon may be reproduced or used in any form or by any means—graphic, electronic, or mechanical, including photocopying, recording, taping, or information storage and retrieval systems—without written permission of the publisher.

Library of Congress Catalog Card Number: 2007940933 ISBN: 978-1-56367-703-8 GST R 133004424 Printed in the United States of America TP08

00_fm1_pi-xxx

6/10/08

9:49 AM

Page v

Contents

Extended Contents vii Preface xxiii Acknowledgments xxvii PART I

Understanding the Retail Environment Where Buying Occurs 1

Chapter 1 Today’s Buying Environment 3 Chapter 2 The Buying Function in Retailing 37 Chapter 3 Buying for Different Types of Stores 67

PART II Getting Ready to Make Buying Decisions
Chapter 4 Obtaining Assistance for Making Buying

93

Decisions 95 Chapter 5 Understanding Your Customers 127 Chapter 6 Understanding Product Trends: What Customers Buy 155 Part III Planning and Controlling Merchandise

Purchases
Chapter 7 Chapter 8 Chapter 9 Chapter 10

189

Forecasting 191 Preparing Buying Plans 221 Developing Assortment Plans 249 Controlling Inventories 277

00_fm1_pi-xxx

6/10/08

9:49 AM

Page vi

vi • Contents PART IV Purchasing Merchandise
Chapter 11 Chapter 12 Chapter 13 Chapter 14

305
307

Selecting Vendors and Building Partnerships Locating Sources in Foreign Markets 333 Making Market Visits and Negotiating with Vendors 361 Making the Purchase 393

PART V
Chapter 15 Chapter 16

Motivating Customers to Buy
Pricing the Merchandise 421 Promoting the Merchandise 445
Appendix A 471 Appendix B 473 Glossary 477 Index 491 Credits 513

419

00_fm1_pi-xxx

6/10/08

9:49 AM

Page vii

Extended Contents

Preface xxiii Acknowledgments xxvii

PART I

Understanding the Retail Environment Where Buying Occurs 1
3

Chapter 1 Today’s Buying Environment Introduction 4

A Marketing Orientation 5 Developing a Consumer Orientation Positioning a Retail Store 6 Targeting Consumers 6 Types of Target Marketing 9

5

Emerging and Growing Retail Formats: Where Will Consumers Make Purchases? 10 Direct Marketing 11 Electronic Retailing 13 Superstore Retailing 18 Trends and Challenges Facing Retailers 20 Too Many Stores 21 Increasing Consolidation and Shakeouts in Retailing 21 Marketing to Smaller Niches 22

00_fm1_pi-xxx

6/10/08

9:49 AM

Page viii

viii • Extended Contents
Rapid Globalization 23 Increased Customer Demand for Value and Service 23 Customers Are Changing, Too 25 Growing Use of Database-Driven Marketing Spreading Use of Technology 27 Other Trends and Challenges 27 Summary Points 28

26

Review Activities 29 Developing Your Retail Buying Vocabulary 29 Understanding What You Read 29 Analyzing and Applying What You Read 30 Internet Connection 30 SNAPSHOT: LandsEnd.com: From Catalog to Online Sales 31 SNAPSHOT: Lowe’s Continues to Grow 32 TRENDWATCH: Targeting Current Customers 34

Chapter 2 The Buying Function in Retailing

37

The Buyer’s Job 38 Factors Affecting the Scope of the Buyer’s Job 39 The Buyer’s Job: Duties and Responsibilities Role of Assistant Buyers 42 Changing Role of the Buyer 43 Managing the Buying Function 45 Role of the Merchandise Manager 45 Evaluating Buyers’ Performance 46 Planning for a Buying Career 47 Qualifications Needed 47 Career Paths 51 Employment Forecasts 56 Getting a Job As a Buyer 57 Summary Points 59

41

00_fm1_pi-xxx

6/10/08

9:49 AM

Page ix

Extended Contents

• ix

Review Activities 60 Developing Your Retail Buying Vocabulary 60 Understanding What You Read 60 Analyzing and Applying What You Read 61 Spreadsheet Skills 61 Internet Connection 61 SNAPSHOT: The Macy’s Internship Program: Starting Your Career 62 SNAPSHOT: AllRetailJobs.com: Using the Internet to Locate Merchandising Positions 63 TRENDWATCH: Today’s Buyer 65

Chapter 3 Buying for Different Types of Stores

67

Buying Different Types of Products 68 Buying at Different Retail Formats 70 Department Stores 71 Discount Department Stores 72 Outlet Stores 73 Specialty Stores 74 Supermarkets 74 Buying for Chain Stores 75 Centralized Buying 76 Types of Centralized Buying 76 Drawbacks of Centralized Buying

78

Organizational Structure and the Buying Function 79 Types of Departmentalization 79 Relationship of Merchandising to Other Departments 82 Buying for Your Own Store Summary Points 85 86 83

Review Activities 86 Developing Your Retail Buying Vocabulary Understanding What You Read 86

00_fm1_pi-xxx

6/10/08

9:49 AM

Page x

x • Extended Contents
Analyzing and Applying What You Read Internet Connection 87 87

SNAPSHOT: Kohl’s: A Department Store with a Discount-Store Strategy 87 SNAPSHOT: The Future of the Department Store 89 TRENDWATCH: Is Bigger Really Better? Will the Small Independent Retailer Survive? 90

PART II

Getting Ready to Make Buying Decisions
Decisions 95

93

Chapter 4 Obtaining Assistance for Making Buying Marketing Research 96 Using Marketing Research 96 Collecting Data 98 Analyzing and Interpreting Data Internal Sources 100 Store Records 100 Management 101 Sales Associates 102 External Sources 103 Customers 103 Magazines and Trade Publications Vendors 106 Trade Associations 106 Comparison Shoppers 106 Fashion Forecasters 107 Reporting Services 108 The Internet 108 Buying Offices 109

99

105

Buying Offices 109 Purpose and Importance 109 Services Provided by Buying Offices 111 Types of Buying Offices 113

00_fm1_pi-xxx

6/10/08

9:49 AM

Page xi

Extended Contents

• xi

Selecting a Buying Office 114 Trends Influencing Buying Offices Summary Points 117

116

Review Activities 118 Developing Your Retail Buying Vocabulary 118 Understanding What You Read 118 Analyzing and Applying What You Read 119 Internet Connection 120 SNAPSHOT: Talbots: Committed to Marketing Research 120 TRENDWATCH: Loyalty Cards: How Can They Benefit Retail Buyers? 122 TRENDWATCH: Using Different Retail Formats to Appeal to Diverse Customers in the Same Market 124 Chapter 5 Understanding Your Customers Introduction 128

127

Identifying Changes in Consumer Markets 130 Demographic and Consumer Behavior Trends 131 Lifestyle Trends 134 Understanding Why Consumers Buy 136 Rational Buying Motives 137 Emotional Buying Motives 138 Patronage Buying Motives 138 Learning About Your Current Customers 139 Data Warehousing 139 Data Mining 141 Database Marketing 143 Summary Points 147 Review Activities 148 Developing Your Retail Buying Vocabulary Understanding What You Read 148 148

00_fm1_pi-xxx

6/10/08

9:49 AM

Page xii

xii • Extended Contents
Analyzing and Applying What You Read Internet Connection 149 149

SNAPSHOT: Trends and Countertrends: Can Buyers Predict What Customers Want? 150 TRENDWATCH: Hispanic Teens: The Largest Ethnic Youth Group 151 TRENDWATCH: Baby Boomers: Reaching Them After 60 153 Chapter 6 Understanding Product Trends: What Customers

Buy

155

Product Selection Decisions 156 Types of Products Customers Purchase 158 Purchases Bases on Availability 159 Purchases Based on Durability and Quality Purchases Based on Fashion Appeal 161 Purchasing “New” Products 164 Purchasing Fads 166

160

Product Life Cycles and Fashion Adoption Theories 169 Product Life Cycle 169 Fashion Adoption Theories 171 Using Product Life Cycles and Adoption Theories 173 Creating Product Differences 174 Brand Names 174 Licensed Products 175 Mass Customization 178 Summary Points 178 Review Activities 179 Developing Your Retail Buying Vocabulary 179 Understanding What You Read 180 Analyzing and Applying What You Read 180 Internet Connection 181 SNAPSHOT: Customizing Purchases Online 181

SNAPSHOT: Smart Cars: Will They Succeed in the United States? 183

00_fm1_pi-xxx

6/10/08

9:49 AM

Page xiii

Extended Contents

• xiii

TRENDWATCH: Fads: What Is the Next Big Thing? 184 TRENDWATCH: Casual Fridays: Is the Pendulum Swinging the Other Way? 186

PART III Planning and Controlling Merchandise

Purchases
Chapter 7 Forecasting

189
191
192

Scope of Forecasting

Developing Sales Forecasts 195 Examining Internal Forces 195 Examining External Forces 195 Acquiring Needed Data 197 Making Sales Forecasts 199 Making Adjustments 202 Forecasting Decisions 202 Forecasting Sales 202 Planning Inventory Levels 207 Determining Stock Turnover 208 Future Direction of Sales Forecasting Summary Points 211 Review Activities 212 Developing Your Retail Buying Vocabulary 212 Understanding What You Read 212 Analyzing and Applying What You Read 213 Application Exercises 213 Spreadsheet Skills 214 Internet Connection 214 SNAPSHOT: Family Dollar: Fine-Tuning Its Retail Strategy 215 TRENDWATCH: Using Weather Forecasts to Improve Retail Forecasts 217 TRENDWATCH: Market-Basket Analysis: How Do Customers Shop a Store? 219 211

00_fm1_pi-xxx

6/10/08

9:49 AM

Page xiv

xiv • Extended Contents
Chapter 8 Preparing Buying Plans

221
222

Merchandising Management

Six-Month Merchandise Plan 224 Purposes of the Plan 224 Components of the Plan 225 Preparation of a Six-Month Merchandise Plan 228 Planned Sales 228 Planned BOM Inventory 230 Planned EOM Inventory 232 Planned Reductions 232 Planned Purchases at Retail 233 Planned Purchases at Cost 234 Basic Stock Planning 235

Open-to-Buy Planning 239 Definition of Open-to-Buy 239 Open-to-Buy Calculations 239 Benefits and Uses of Open-to-Buy Summary Points 241

240

Review Activities 242 Developing Your Retail Buying Vocabulary 242 Understanding What You Read 243 Analyzing and Applying What You Read 243 Application Exercises 243 Spreadsheet Skills 244 Internet Connection 245 SNAPSHOT: RMSA: Retail Merchandising Service Automation 245 TRENDWATCH: Merchandise Planning: Taking the Holiday Pulse 247 Chapter 9 Developing Assortment Plans

249

Planning Merchandise Assortments 251 Factors Affecting Merchandise Assortments 252 Type of Merchandise 253

00_fm1_pi-xxx

6/10/08

9:49 AM

Page xv

Extended Contents

• xv

Store Policies 255 Variety of Merchandise Available

256 258

Merchandise Classifications 258 Classifications and Subclassifications Selection Factors 261 Preparing an Assortment Plan 264 Summary Points 268

Review Activities 269 Developing Your Retail Buying Vocabulary 269 Understanding What You Read 270 Analyzing and Applying What You Read 270 Application Exercises 271 Spreadsheet Skills 272 Internet Connection 272 SNAPSHOT: Fashion Forecasting: Doneger Creative Services 273 TRENDWATCH: All Shapes and Sizes: The Plus-Size Market Continues to Grow 274 Chapter 10 Controlling Inventories

277

Inventory Control Systems 278 Perpetual Control 279 Periodic Control 281 Establishing and Using Inventory Control Systems 282 Information Required 282 Using Inventory Control Information

285

Inventory Calculations 287 Dollar Control Systems 287 GMROI—Measuring Profitability of Sales 289 Inventory Management: Quick Response 290 Requirements for Quick Response 291 Implementing Quick Response 293 Measuring the Impact of Quick Response Summary Points 295

294

00_fm1_pi-xxx

6/10/08

9:49 AM

Page xvi

xvi • Extended Contents
Review Activities 296 Developing Your Retail Buying Vocabulary 296 Understanding What You Read 296 Analyzing and Applying What You Read 297 Application Exercises 297 Internet Connection 298 SNAPSHOT: VF Brands: Implementing Quick Response 298 TRENDWATCH: Scanners: How Accurate Are They? 300 TRENDWATCH: RFID: Can It Improve Retail Logistics? 301

PART IV Purchasing Merchandise

305
307

Chapter 11 Selecting Vendors and Building Partnerships Types of Vendors 308 Manufacturers 309 Wholesalers 309 Manufacturers’ Representatives/Brokers Rack Jobbers 311 Making Contact with Potential Vendors 311 Buyer-Initiated Contacts 311 Vendor-Initiated Contacts 312 Criteria for Selecting Vendors 314 Merchandise and Prices Offered 314 Vendors’ Distribution Policies 315 Vendors’ Reputation and Reliability 316 Terms Offered 316 Services Provided 316 Analyzing Vendor Performance 318

310

Developing Strong Buyer–Vendor Partnerships 321 Basis for Strong Partnerships with Vendors 321 Buyers’ Expectations of Vendors 322 Future Trends 323

00_fm1_pi-xxx

6/10/08

9:49 AM

Page xvii

Extended Contents

• xvii

Summary Points 325 Review Activities 326 Developing Your Retail Buying Vocabulary 326 Understanding What You Read 326 Analyzing and Applying What You Read 327 Internet Connection 327 SNAPSHOT: IKEA: Building a Global Empire TRENDWATCH: Manufacturers’ Factory Outlet Stores 330 Chapter 12 Locating Sources in Foreign Markets Foreign Markets 334 Purchasing from Foreign Sources 335 Reasons to Buy from Foreign Sources 337 Drawbacks to Buying from Foreign Sources Making the Decision to Buy from Foreign Sources 340 Locating Foreign Sources 342 Making Personal Buying Trips Using Intermediaries 345 Globalization of Retailing 345 343 328

333

338

“Buy American” Campaigns 348 Summary Points 351 Review Activities 351 Developing Your Retail Buying Vocabulary 351 Understanding What You Read 352 Analyzing and Applying What You Read 352 Internet Connection 353 SNAPSHOT: Zara: Providing Style and Rapid Response 353 SNAPSHOT: Wal-Mart Exits Germany: What Are the Challenges of Global Expansion? 355

00_fm1_pi-xxx

6/10/08

9:49 AM

Page xviii

xviii • Extended Contents
TRENDWATCH: Recalled Products: What Went Wrong? 356 TRENDWATCH: “Buy American” Campaigns 358 Chapter 13 Making Market Visits and Negotiating with

Vendors

361

Preparing for a Market Visit 362 Types of Markets 363 Purposes of Buying Trips 365 Frequency of Market Trips 365 Planning the Market Trip 367 Visiting the Market 368 Working with a Buying Office 368 Visiting Vendors 371 Visiting Factories 373 Other Market Activities 373 Visiting Online Showrooms 374 Preparing to Negotiate 374 Analyze Your Position 376 Determine the Vendor’s Position 376 Develop Negotiation Skills 376 Determine Objectives of Negotiations 377 Setting the Stage for Negotiating 378 Build Rapport 378 Ask Questions 378 Listen and Watch for Nonverbal Clues Developing a Negotiating Strategy 379 Personality Styles in Negotiations 380 Negotiation Tactics 380 Bargaining 382 Negotiation Checklist 383 Outcomes of Negotiation 383 Summary Points 384 Review Activities 385 Developing Your Retail Buying Vocabulary 385

379

00_fm1_pi-xxx

6/10/08

9:49 AM

Page xix

Extended Contents

• xix

Understanding What You Read 385 Analyzing and Applying What You Read Internet Connection 387

386 387

SNAPSHOT: The American International Toy Fair TRENDWATCH: Which Furniture Market Will Dominate? 389

SNAPSHOT: Springs Industries: The Loss of Another U.S. Textile Manufacturer 391 Chapter 14 Making the Purchase

393
394

Negotiating Terms of the Sale Price 394 Discounts 396 Transportation 398 Allowances 399 Return Privileges 399

Negotiating Special Buying Situations 400 Private Brands 400 Specification Buying 404 Promotional Buying 404 Job Lots 405 Off-Price 405 Seconds and Irregulars 406 Placing the Order 406 Types of Orders 407 Parts of the Purchase Order Follow Up of Orders 409 Summary Points 410 Review Activities 410 Developing Your Retail Buying Vocabulary 410 Understanding What You Read 411 Analyzing and Applying What You Read 412 Spreadsheet Skills 412 Internet Connection 413 SNAPSHOT: Liz Claiborne 413

407

00_fm1_pi-xxx

6/10/08

9:49 AM

Page xx

xx • Extended Contents
TRENDWATCH: Source Tagging: Bargaining for Floor-Ready Merchandise 415 TRENDWATCH: Private Labels Spell Profits 416

PART V

Motivating Customers to Buy
421

419

Chapter 15 Pricing the Merchandise

Establishing Retail Prices 422 Elements of Retail Price 423 Determining Markup Percentage 423 Planning Initial Markup Percentage 424 Factors Affecting Retail Price 428 Target Market 428 Store Policies 429 Competition 431 Economic Conditions 432 Adjustments to Retail Price 433 Markdowns 433 Markdown Cancellations 435 Additional Markups 436 Evaluating Pricing Decisions 437 Market Share 437 Profit 437 Markup Achieved 437 Summary Points 437 Review Activities 438 Developing Your Retail Buying Vocabulary Understanding What You Read 439 Application Exercises 439 Spreadsheet Skills 441 Internet Connection 441 438

SNAPSHOT: Dollar Tree: Successfully Pricing Items for a Dollar 441 TRENDWATCH: Outlet Centers: Do They Deliver Lower Prices? 443

00_fm1_pi-xxx

6/10/08

9:49 AM

Page xxi

Extended Contents

• xxi

Chapter 16 Promoting the Merchandise

445

Retail Promotional Activities 447 Advertising 447 Visual Merchandising 448 Personal Selling 450 Publicity 451 Special Events 452 Other Sales Promotion Activities

453

Developing a Promotional Plan 454 Establish Objectives 454 Prepare the Budget 456 Select Merchandise for Promotion 458 Establish the Schedule 459 Prepare the Promotional Message 460 Evaluate Promotional Activities 460 Coordination of Promotional Activities 461 Summary Points 463 Review Activities 464 Developing Your Retail Buying Vocabulary 464 Understanding What You Read 464 Analyzing and Applying What You Read 465 Internet Connection 465 SNAPSHOT: Lillian Vernon: Promoting an Image Through Catalogs 466 TRENDWATCH: Victoria’s Secret: Using the Web as a Promotion Tool 468 Appendix A: Basic Retail Math Formulas 471 Appendix B: Decision Making Glossary Index Credits 477 473

491 513

00_fm1_pi-xxx

6/10/08

9:49 AM

Page xxiii

PREFACE

The purpose of Retail Buying is to prepare students for merchandising careers in retailing. Throughout the text, students are introduced to basic concepts, principles, and techniques used by retail buyers as they complete their day-to-day duties and responsibilities. References to a wide range of merchandising careers are also found in the text. Not only are traditional retail stores examined, but also various examples relate to nontraditional types of retailing, such as mail order, online, and direct. The use of technology in retail buying is presented throughout the text, and basic mathematical calculations performed by buyers are also presented to review and reinforce students’ math skills. The overall goal is for students to use the information presented in the text to learn how to develop an effective buying strategy. Many special features are used in Retail Buying to explain buying concepts in a challenging and practical manner. The author made every effort to ensure that the material is written clearly and concisely to enhance student understanding. Snapshots are included in each chapter to present up-to-date highlights of current merchandising concepts, strategies, and techniques being used by actual retail businesses. Each Snapshot is related to material presented in the chapter, making it more interesting and relevant to students. Instructors may find it appropriate to assign students the task of conducting research to update material found in each Snapshot or to apply it to other retail businesses with which they may be more familiar.

00_fm1_pi-xxx

6/10/08

9:49 AM

Page xxiv

xxiv • P r e f a c e
At least one Trendwatch, which presents information about a trend is included in each chapter. Highlighted trends focus on the general direction that topics in the chapter have taken. In some chapters, students will be examining trends that have occurred in the past; most chapters, however, deal with recent trend changes. By their very nature, new trends were developing as this text was being written and published. Instructors and students will want to continually monitor the marketplace to discover new trends as they begin to appear. Constantly being aware of changes in the market is a task buyers use throughout their careers. Material is included that gives students the opportunity to develop merchandising skills rather than simply reading about the types of activities that are performed by buyers. For example, step-by-step approaches are presented for buying tasks such as these: identifying and understanding potential customers, developing sales forecasts, preparing a 6-month merchandise plan, planning merchandise assortments, preparing an assortment plan, identifying criteria for selecting vendors, preparing for a market visit, negotiating with vendors, placing an order, and coordinating promotional activities. Up-to-date information about current buying practices and techniques can be found throughout the text. Students will learn more about: trends and challenges facing retailers, such as consolidation, shakeouts, online retailing, and globalization; the increasing use of technology and the Internet by retail buyers; employment forecasts for merchandising careers; the growing emphasis on centralized buying; targeting current customers through more effective forecasting; understanding customers through techniques such as data warehousing, data mining, and database marketing; controlling inventories more effectively through Quick Response; and techniques for more effective negotiations with vendors. Various viewpoints on key issues are also presented and can be adapted for classroom discussion or debate. For example, different views are highlighted on the future of specific types of retail stores, the use of centralized buying, the future of buying offices, and the use of domestic sourcing and “Buy American” campaigns. References are presented throughout the text that can serve as a list of suggested readings for further study and research. The references present students with sources that are important to buyers as they study trends and make buying decisions. Each chapter begins with a list of performance objectives and ends with a summary of key points presented in the chapter. Vocabulary terms related to retail buying are also highlighted in the text and listed at the end of each chapter.

00_fm1_pi-xxx

6/10/08

9:49 AM

Page xxv

Pr ef ace

• xxv

A variety of questions are included. Understanding What You Read questions can be used to generate class discussion and review information presented in the chapter. Analyzing and Applying What You Read questions provide students with the opportunity to analyze buying principles presented in the chapter. A section titled Internet Connection, is included in each chapter. Suggested activities that utilize the Internet are presented to reinforce material found in the chapter. Chapters that emphasize mathematical calculations include a section on Spreadsheet Skills. Activities are suggested for developing and using spreadsheets. Additional spreadsheet activities that are also listed can be found in Making Buying Decisions: Using the Computer as a Tool, a companion text. Throughout the text, charts present current data that affects many aspects of the retail buyer’s job. Photographs used show examples of current retail practices in actual stores and showrooms. Sample forms used by buyers are presented to illustrate the kinds of records that buyers may encounter. In Part I: Understanding the Retail Environment Where Buying Occurs, we learn that to be successful, buyers must understand the retail environment in which buying occurs. The first three chapters introduce buying practices and procedures of various types of retail businesses. In Chapter 1, students are introduced to buying and are presented a marketing orientation to factors that will influence many of the decisions that buyers make. Emerging and growing retail formats are described with a discussion of trends and challenges facing retailers. In Chapter 2, students examine merchandising careers in retailing. Detailed job descriptions for a buyer, assistant buyer, and merchandise manager are presented. Information is also presented on how to plan for a career in retail buying. In Chapter 3, students learn how the buyer’s job differs in various types of retail formats. Retail organizational structures are presented, and the relationship of merchandising to other departments is highlighted. Part II: Getting Ready to Make Buying Decisions discusses how once buyers understand the marketplace in which they work, they need to develop an understanding of customers and trends affecting future sales. In Chapter 4, students examine sources of information that would be available to them when making buying decisions. Internal and external sources are described with emphasis on the role of buying offices. In Chapter 5, information is presented to help buyers better understand their customers. Recent changes in the consumer markets are described, and reasons why customers buy are discussed. Targeting customers by using technology, such as database marketing, data mining, and data

00_fm1_pi-xxx

6/10/08

9:49 AM

Page xxvi

xxvi • P r e f a c e
warehousing, is emphasized. In Chapter 6, students gain an understanding of what types of products customers purchase. New product trends, especially products with fashion appeal, are emphasized. Product life cycles and fashion adoption theories are explained. Part III: Planning and Controlling Merchandise Purchases deals with how buyers now understand their customers and the environment in which they will be operating and are ready to make purchasing plans. In Chapter 7, the scope of forecasting is described, and students examine the steps for developing effective sales forecasts. In addition, material is presented about forecasting decisions to predict inventory needs. In Chapter 8, students learn how to develop merchandise plans for fashion and basic merchandise. In Chapter 9, students plan merchandise assortments and develop an assortment plan. In Chapter 10, different inventory control plans are presented, and the mathematical calculations needed by buyers are explained. Quick Response is described in relation to purchase planning and merchandise control. Part IV: Purchasing Merchandise concerns how buyers having prepared their merchandise plans and are now ready to select vendors from whom to make purchases. In Chapter 11, students examine various types of vendors and learn how to identify criteria for selecting them. The development of partnerships between retailers and vendors is emphasized. In Chapter 12, students examine foreign sourcing for their planned purchases. Benefits and drawbacks are presented. In Chapter 13, steps for planning a market trip are explained in detail. Negotiation practices frequently used by buyers are presented. Emphasis is placed on developing a negotiation strategy that results in a win-win outcome. In Chapter 14, terms of the sale and special buying situations are described. Procedures for placing the final order are presented. Part V: Motivating Customers to Buy concerns how once merchandise has been purchased for the store, buyers may be responsible for other retailing activities to motivate customers to buy. In Chapter 15, students examine the mathematical calculations needed to price incoming merchandise and make price adjustments on in-stock merchandise. In Chapter 16, students examine promotional activities that can be used to promote merchandise purchased by the buyers. Students learn how to develop and coordinate promotional activities. Appendix A: Basic Retail Math Formulas is presented as a handy reference to review the basic math used in merchandising. Appendix B: Decision Making is presented as a step-by-step process of approaching individual and group decision making in classroom activities, as well as in retail buying careers. A Glossary of over 250 terms related to retail

00_fm1_pi-xxx

6/10/08

9:49 AM

Page xxvii

Pr ef ace

• xxvii

buying is included for students to use as a quick reference of key terms found in the text. An instructor’s manual is available with the text, which presents suggested teaching ideas, a key to chapter review activities, and a test bank of questions for each chapter.

ACKNOWLEDGMENTS Many retail professionals provided me with information on current buying practices that are included in this text. Representatives of Parisian, Bloomingdale’s, Rich’s, Lowe’s, Hartmarx Corporation, Wal-Mart, Carolinas-Virginia Fashion Exhibitors, Belk, and Belk Store Services provided the answers to many questions while this edition was being written. In addition, many other individuals provided me with a wealth of materials and sources that have been incorporated in this text. Special thanks to the following JCPenney associates who conducted workshops and answered numerous questions when I completed a twoweek professor internship with the company at their store in Columbia, South Carolina, and at corporate headquarters in Dallas, Texas: Debbie Herd (College Relations Manager); Haley Peoples (College Relations Manager); Derrick Flowers (Buyer, Young Men’s Collection); Rosie Salinas (Assistant Buyer, Bedding); Susan Hardy (Brand Manager, Arizona Brand); Steve Larson (Inventory Planning Manager, Men’s Shoes); David Kopach (Human Resources Manager, Outlet Stores); Denis Miller (Project Analyst, Catalog Marketing); Laura Owens (Project Analyst, Catalog Marketing); George Stasick (Director of Internet Commerce); Stephanie Gwin (Divisional Trend Manager); John Thomas (Director of Creative Services); Ira Silver (Assistant Director, Business Planning and Analysis); Carol Snyder (International Merchandise Manager); Mark Mears (Director of Sales Planning and Promotions); and Mark Anderson (Assistant Store Manager, JCPenney at Stone Briar Mall, Dallas). Special thanks to the following individuals who conducted workshops and answered numerous questions when I participated in a three-day Advanced institute in Direct/Interactive Marketing for Professors in College Park, Maryland: Laurie Spar, Martin Baier, Dan Dale, Hal Malchow, Pat Faley, Ward Thomas, Scott Tilden, and Mark Heller. The Institute was sponsored by the Direct Marketing Educational Foundation of the Direct Marketing Association. Appreciation is also extended to David C. Hochberg, Vice President of Public Affairs for Lillian Vernon Corporation for the detailed information that he provided.

00_fm1_pi-xxx

6/10/08

9:49 AM

Page xxviii

xxviii • P r e f a c e
I also appreciate the many helpful suggestions made by the reviewers of the original manuscript for the text. These experienced and creative instructors included: Michele Granger, Rose Bednarz, June Fischer, Tana Stuttlebean, Luann Gaskil, Li Zhang, Glenda Lowry, Harvey Shoemach, and Cynthia Jasper. I remain grateful to Mary McGarry and Joann Muscolo, former editors at Fairchild, for their guidance and encouragement in the second edition. Finally, I appreciate the assistance of my graduate research assistant, and I am especially grateful to Jaclyn Bergeron, Fairchild editor of this revision.

00_fm1_pi-xxx

6/10/08

9:49 AM

Page xxix

RETAIL BUYING

07_planning_p189-220

6/9/08

1:07 PM

Page 189

P A R T

III

Planning and Controlling Merchandise Purchases

07_planning_p189-220

6/9/08

1:07 PM

Page 191

C h a p t e r

7

Forecasting
PERFORMANCE OBJECTIVES
Upon completion of this chapter, you should be able to: • Recognize the value of accurate forecasting to the buyer. • Identify the benefits of developing sales forecasts. • Describe internal forces affecting sales forecasts. • Describe external forces affecting sales forecasts. • Identify uses of primary and secondary data in developing sales forecasts. • List the steps involved in developing a sales forecast. • Describe methods used in forecasting inventory needs. • Predict sales based on stock-to-sales ratios and stock turnover. • Recognize that buyers need quantitative skills.

07_planning_p189-220

6/9/08

1:07 PM

Page 192

192 • Part III Planning and Controlling Merchandise Purchases

After collecting information from the sources described in the previous chapters, buyers must use the data to make forecasts about what will happen in the future. Forecasting involves predicting what consumers may do under a given set of conditions. Buyers most often make forecasts concerning consumer demand, sales, and required inventory levels. To make these forecasts, they must collect and analyze information from a number of sources, including forecasts that other people have made. Many forecasts concerning the entire retailing industry are described in Chapter 1. In this chapter, you will learn more about forecasting. How buyers identify consumer trends and anticipate changes in market conditions will be described and the steps used to make a forecast examined. Then, you will learn how buyers use these skills for sales forecasting and stock planning.

SCOPE OF FORECASTING
Buyers typically develop forecasts to answer questions such as these:
• How much of each product will need to be purchased? • Should new products be added to the merchandise assortment being offered?

07_planning_p189-220

6/9/08

1:07 PM

Page 193

Chapter 7 Forecasting • How much inventory is needed to support the planned sales? • What price should be charged for each product?

• 193

Answers to these questions are based on predictions of what you believe the customer will do in the future. Just like a prediction about tomorrow’s weather, your forecast will not always be correct, but steps can be taken to improve your forecasting ability. Read the Trendwatch titled, “Using Weather Forecasts to Improve Retail Forecasts,” to learn more about how long-term weather forecasting is being used as a tool to improve retail forecasts. First, you need to obtain past sales records. In making a forecast, most buyers start with information on past sales to predict future sales, but you cannot stop there. You must also consider other internal forces that are operating in your store such as expansion of sales space or reduction in the number of sales associates. Then you need to examine external forces such as competition and economic conditions. As you probably realize, no sales forecast will match actual sales exactly. You may purchase too much of some items and not enough of others, but if you keep accurate records, you have the opportunity to improve your future forecasts. Once you have identified all the sources of assistance that are available to you, you are ready to collect and analyze information about market conditions and your target consumers to develop forecasts. The most important forecast you will make is the sales forecast, a prediction of future sales for a specified period under a proposed marketing plan. The sales forecast can be a prediction of total sales volume, or sales can be forecast for:
• Specific products or services (brands or models), • Specific consumer groups (males, over 65), • Time periods (weekly, monthly), or • Specific store locations.

A sales forecast is made for a specified period of time that can cover a few weeks or even years. Short-term forecasts usually include a period of up to one year. Buying fashion merchandise usually requires developing a sales forecast for a six-month period. Grocery stores and drug stores that deal with more basic merchandise may have to forecast sales for only a few days or a week. Long-term forecasts extend for more than a year.

07_planning_p189-220

6/9/08

1:07 PM

Page 194

194 • Part III Planning and Controlling Merchandise Purchases
The time period for which the sales forecast is made will have a great impact on its accuracy. Forecasts that attempt to predict sales many years into the future may be much less accurate than a forecast for sales during the next two months. Existing market conditions may remain the same for a few weeks; however, these conditions could drastically change by the end of the season. Customers’ tastes could also change rapidly. If the market is volatile and changes quickly, long-term forecasts may be meaningless. Forecasting is a crucial planning tool for buyers. Preparing sales forecasts requires them to think in detailed terms about (1) target market groups the store is trying to serve, (2) existing and potential competitors, and (3) future trends occurring in the market and the economy. In other words, they must make a thorough examination of the store and its markets before preparing a sales forecast and developing merchandise buying plans. In addition, sales forecasts:
• Stimulate Planning. Without a sales forecast, buyers could not make other critical decisions such as inventory levels required and retail prices to charge customers. • Promote Coordination. A sales forecast becomes a target for all members of the merchandising team. Buyers, store managers, and sales associates must all tailor their activities to reach the desired sales goal. • Support Control Activities. The sales forecast becomes the basis for measuring success or failure of the buyer’s efforts. It provides a quantitative measurement against which the buyer’s performance can be measured for pay raises, promotion, or dismissal.

Because they play such an important role, sales forecasts need to be as accurate as possible, but since forecasting is an attempt to predict the future, they can be inaccurate. In the final analysis, accuracy of sales forecasting tends to improve as more data analysis and interpretation are applied. Buyers must have confidence in forecasts they make, and that confidence increases with a thorough understanding of all the forces that can have an impact on sales. Forecasts should be based on facts, not guesswork! Before developing a sales forecast, buyers must first identify their target customers, understand why they buy, and gain an understanding of trends affecting these markets. Read the Snapshot titled, “Family Dollar: Fine-Tuning Its Retail Strategy,” to learn more about one retailer’s use of forecasting and planning.

07_planning_p189-220

6/9/08

1:07 PM

Page 195

Chapter 7 Forecasting

• 195

DEVELOPING SALES FORECASTS
Forecasting sales requires that buyers identify and understand the internal and external forces that will have an impact on those sales.

Examining Internal Forces All internal forces within the store that probably will affect sales should be carefully examined before developing a sales forecast. For example, future sales can be affected by increasing or decreasing advertising expenditures, liberalizing or tightening credit policies, and increasing or decreasing retail prices. Even changes in store hours or physical facilities will affect future sales. You must estimate the impact of such changes on projected sales before any sales forecast is developed.

Examining External Forces Before making a sales forecast, you must also analyze external forces that may affect sales. You will need to examine changes in economic conditions, demographic trends, and competitive conditions.

Economic Conditions. Both the national and local economic climate should be analyzed, but you must realize that economic conditions will not affect all businesses in the same way. For example, during economic slowdowns, sales at some stores, such as do-it-yourself home stores, actually increase. Plant closings and employee layoffs are local economic conditions that will generally cause sales to decline. Headlines from the newspaper, such as those presented in Figure 7.1, provide information that should be considered when you are making a sales forecast. You must also realize that during inflationary periods, increases in dollar sales may occur without a corresponding increase in unit sales.

Demographic Trends. Demographic factors should also be analyzed before developing a sales forecast. The movement of people into or out of your store’s trading area can have an impact on future sales. Sales forecasts should be adjusted downward if the store’s trading area appears to be losing a large number of residents.

07_planning_p189-220

6/9/08

1:07 PM

Page 196

Figure 7.1

How would each of these headlines affect buyers’ decisions?

07_planning_p189-220

6/9/08

1:07 PM

Page 197

Chapter 7 Forecasting

• 197

Changes in the composition of the population may also affect sales. A firm that relies on purchases by 18-to-35-year-olds may find that the most rapidly growing segment in its trading area is over 65, requiring forecasts to be adjusted downward. Even lifestyle changes in your target market need to be examined. For example, your customers may become more conscious of environmental issues and start purchasing only products that are environmentally sound. You must be alert to all demographic trends and changes in your customer base before making your sales forecast.

Competitive Conditions. Competitors may enter or leave your market area at any time, and sales forecasts need to be adjusted accordingly. Your competitors’ promotional strategies may also change. For example, a competitor may decide to increase advertising or introduce a new contest, and if they are effective, both could cause decreased sales for your store.

Acquiring Needed Data To make sales forecasts, you need to locate and use information; therefore, you must be knowledgeable about the types of data available and how to obtain them. Many of these sources are described in Chapter 4. Your first decision is whether primary data collection will be needed. To make that decision, you must thoroughly examine secondary data sources because they can be the most cost-effective to use. Primary data originate with the specific research being undertaken. In other words, you collect the information to solve the current problem at hand. Direct customer surveys are the chief means used to obtain information on your customers’ attitudes and opinions. Secondary data are data that have been gathered for some other purpose but are applicable to solving your problem. Business records produced by other departments in your store and information that is obtained from books and magazines are examples of secondary data. Let’s more closely examine these data sources and the uses that can be made of each one.

Primary Data Sources. Many retailers spend both time and money to collect information from their customers on a perpetual basis. Stew Leonard’s, the famous Connecticut food store, attracts more than

07_planning_p189-220

6/9/08

1:07 PM

Page 198

198 • Part III Planning and Controlling Merchandise Purchases
100,000 shoppers a week to its flagship store. The company relies heavily on primary data collection to improve its service and product offerings to customers. Holding weekend focus group sessions, reading comments from the suggestions box (which customers actually use), and simply walking the aisles speaking with customers and employees are techniques the company has used since it opened its first store. Management is constantly on the lookout for ways to improve customers’ shopping experience. They do not wait until sales decline before making changes; they know that without careful attention to the desires of the market, sales could change quickly. Dillard’s is another retailer that uses direct customer surveys extensively. In focus groups or in one-on-one interviews, customers are asked which products they would like more of in the stores. Creative Marketplace, a marketing consulting firm, reports that most women go into a store to buy something specific, yet 67 percent leave without having made the purchase. Dillard’s realizes if it can reduce that number, it can increase sales. Dillard’s is even experimenting with computer-aided designs to gauge customer opinions. For example, a store employee is able to show a skirt on a computer screen to a customer and ask in what color or length she would most likely purchase the item. Retailers can also use customer surveys to forecast future consumer buying patterns. In a recent Harris poll, 54 percent of Americans said they did not have as much free time as they used to, and they are spending fewer of those leisure hours shopping. Currently, only 6 percent say shopping is their favorite thing to do, while nearly 63 percent say it is mostly or entirely drudgery. Even shopping time in the stores is decreasing; 47 percent reported they were spending less time shopping than a year ago. New strategies will be needed in the future to get consumers back to the stores, and once there, make that experience as pleasurable as possible. Read the Trendwatch titled, “Market-Basket Analysis: How Do Customers Shop a Store,” to learn more about a data-mining technique that some retailers are beginning to use.

Secondary Sources. Searching for external data may be quick or extensive. For example, the only information that you may need is the average annual sales of men’s suits by stores with less than 2,500 square feet. A single trade journal will be able to provide this information to you. Other questions that deal with consumer opinions may require obtaining as many sources as are available.

07_planning_p189-220

6/9/08

1:07 PM

Page 199

Chapter 7 Forecasting

• 199

Business Publication Rates and Data is an index published by the Standard Rate and Data Service, Inc., which will be a great help to you in identifying trade sources. Every major industry has one or more magazine specifically aimed at its member firms. Professional and trade associations are also good sources of forecasting data. The Encyclopedia of Associations, published by the Gale Research Company of Detroit, lists associations’ names, addresses, number of members, and, most importantly, their publications. General business publications and newspapers should not be overlooked when you need to locate information on market trends or economic conditions. There are even specific sources that report and forecast customer purchasing patterns. The Survey of Buying Power, published annually by Sales and Marketing Management Magazine, contains valuable information on markets by state, county, and MSA (metropolitan statistical area). Data are provided on population, household incomes, and retail sales. Consumer Buying Indicators is issued quarterly by the Bureau of the Census and contains 6-month and 12month expected purchase estimates (in units) of automobiles, homes, furniture, carpets, major appliances, and home improvements. If you use secondary data in making sales forecasts, you must realize there are several shortcomings of this information. Some of the data may be out-of-date. There is no rule as to when data are out-of-date, but in volatile times, data more than five years old are of questionable value. Also, you need to determine the bias of the source that collected the data; be aware of who collected the data and for what purpose. Numbers can usually be twisted to defend almost any side of an argument. There is a huge amount of secondary data available to you. Seek out what you need and make use of it. However, you may be forced to collect primary data in situations where available information does not fit your specific needs.

Making Sales Forecasts When developing a sales forecast, a step-by-step process should be followed that analyzes both internal and external forces that will affect sales. This process involves the following steps:
1. Review past sales. 2. Analyze changes in economic conditions.

07_planning_p189-220

6/9/08

1:07 PM

Page 200

200 • Part III Planning and Controlling Merchandise Purchases
3. Analyze changes in sales potential for specific products or markets. 4. Analyze changes in marketing strategies of your firm and the competition. 5. Forecast sales.

Let’s more closely examine each of these steps. Review Past Sales. A review of past sales records will determine if there are any patterns or trends in the sales figures. Sales will need to be compared with those of last month as well as last year during the same period. This information will give you an initial estimate of any change that might be expected during the coming year if everything else remains the same—which rarely happens. From this information you can answer the following questions:
• Have sales shown a pattern of increase or decrease over the past several years? • If a pattern is present, what is the average percent? • Do recent sales data support this trend? • Can you identify a percentage figure that will reflect the sales trends you have observed?

Analyze Changes in Economic Conditions. You may need to adjust the trend percentage figure you have identified after reviewing economic trends and examining published national and local economic forecasts. Analyze Changes in Sales Potential. Your next step will be to relate demographic changes in the market to your store or the products for which you are responsible. Such information may be difficult to obtain, but here are sources that you can use. The Census of Population (published every ten years) can supply some data, but it will be dated. One of the best sources is the Survey of Buying Power (published annually), which reports population data and sales by major lines of merchandise broken down by region, state, county, MSA, and by cities of more than 25,000 population; however, you may face problems using the data. Merchandise line categories may be too broad for your forecast, or sales data may not be current enough for short-term forecasting purposes. You may want to modify your sales trend percentage figure at this point to reflect changes in market conditions.

07_planning_p189-220

6/9/08

1:07 PM

Page 201

Chapter 7 Forecasting

• 201

Analyze Changes in Marketing Strategies. Next, you need to consider any changes in marketing strategies planned by your store as well as by the competition. For example, a decision to remodel a store, the addition of new lines of merchandise, or a new promotional event will attract customers and can increase sales. There is little information that can be used to predict what the competition will do in the future; however, you can gain information through comparison shopping trips, studying competitor’s ads, and listening to customers. Your trend percentage figure will need to be adjusted again based on any changes in marketing strategies by your store or the competition.

Forecast Sales. Now, it is time to make your sales forecast. Assume that after analyzing past sales records, you determined that there was an average 6 percent increase in sales for the previous six-month periods. You determine that economic growth will increase sales by 2 percent and the size of your market will grow by 5 percent. In addition, you have learned that a competitor will be opening a new store this year, causing an estimated 5 percent decrease in your sales. From this information, you decide to forecast an 8 percent (6 percent 2 percent 5 percent 5 percent) increase in sales for the next period. Sales forecasting is not a precise process, but ultimately it provides the best starting point available from which to plan future sales. The only other alternative—no planning—is not acceptable to professional buyers. Because sales forecasts have such a critical impact on your store, they need to be simultaneously challenging and attainable. If they are not, it spells disaster. If your sales forecasts are dramatically increased over previous periods, the cost of doing business will also have to rise to accommodate the projected sales increase. For example, advertising expenditures may need to be increased or additional sales associates may be needed. If your sales forecasts are set too high and cannot be attained, your resulting expenses-to-sales ratio will be too high, causing profits to fall below expectations. Or if you dramatically underestimate your sales forecast and purchase an inadequate amount of inventory, you will not be able to sufficiently meet consumer demand, which may translate into loss of loyal customers who turn to your competitors. Once you have developed a sales forecast, your merchandise manager’s approval will be needed. You will want to include a brief rationale that should summarize the assumptions that you made and the factors that you considered in developing the forecast. Input from

07_planning_p189-220

6/9/08

1:07 PM

Page 202

202 • Part III Planning and Controlling Merchandise Purchases
your manager should also have been requested while you were gathering data to use in your sales forecast. Once your forecast is approved, your next step will be to develop a merchandise buying plan. That process will be described in Chapter 8.

Making Adjustments Actual sales should be periodically monitored to determine the accuracy of your sales forecasts; however, the forecast should not become a goal that must be met regardless of unforeseen competitive changes or changes in general economic or business conditions. That would cause inefficient use of store resources. During the selling season, you may uncover greater-than-expected sales. You may determine that your store does not have the capital to purchase the required inventory, greater competition than expected may occur, or consumer demand may be less than anticipated. Adjustments in your plan may be required. For some products, reorders can be made quickly if you underestimated consumer demand; however, manufacturers may be out of stock, and customer dissatisfaction has already occurred. Overestimating sales will require changes in marketing strategies. First, examine activities that might be accomplished at little expense. Consider moving the merchandise location or retraining sales associates. Additional advertising expenditures may be required, or markdowns may be needed.

FORECASTING DECISIONS
Two of the most important forecasts that buyers make are of sales and stock levels. Let’s examine how these two important calculations are made.

Forecasting Sales Sales forecasting is a subjective part of the planning process, but it involves much more than guessing. Your forecasting abilities can be improved with practice and experience that will enable you to make more precise and reliable forecasts (Figure 7.2). Most retailers will develop a sales forecast, then plan the amount of inventory required to generate that amount of sales. If basic merchan-

07_planning_p189-220

6/9/08

1:07 PM

Page 203

Chapter 7 Forecasting

• 203

Figure 7.2 Some stores wait too late before collecting information on what customers want. dise is carried year-round, planning will be less complicated; however, where fashion changes are frequent, keeping inventories and sales balanced will be more difficult. Past sales figures are important to a buyer when making sales forecasts, but they should be used only as a guide. In addition to past store records, your planning and forecasting activities must also consider other internal and external factors that are likely to affect sales. Some of these factors include:
• Storewide or departmental promotions and sales, • holidays, • current storewide and departmental sales trends, • population shifts, • shifts in demographic characteristics of the population, • new competition moving into the area, • economic conditions, • changes in store hours, and • changes in the amount of selling space.

07_planning_p189-220

6/9/08

1:07 PM

Page 204

204 • Part III Planning and Controlling Merchandise Purchases Year 1 SEPTEMBER S M T W T F 1 3 10 17 24 4 11 18 25 5 12 19 26 6 13 20 27 7 14 21 28 8 15 22 29 S 2 9 16 23 30

Year 2 SEPTEMBER S 1 8 15 22 29 M 2 9 16 23 30 T 3 10 17 24 W 4 11 18 25 T 5 12 19 26 F 6 13 20 27 S 7 14 21 28

Figure 7.3 Buyers must make adjustments for changes in the selling season that occur from one year to the next.

The accuracy of your forecasts will depend on the accuracy of your past records and your ability to interpret that information in relation to current trends and make projections about future possibilities. Forecasting also requires a certain amount of judgment and experience.

07_planning_p189-220

6/9/08

1:07 PM

Page 205

Chapter 7 Forecasting

• 205

Buyers begin developing sales forecasts by reviewing past sales figures. Last year’s sales figures are important, but you will also want to review the figures for the past two or three years. You will also want to determine the reasons for any sales increases or decreases. By analyzing sales trends for several years, you get a more realistic picture of past sales to guide your forecasting efforts. Accurate forecasting also involves making adjustments for differences in the number of selling days in a month during different years. For instance, as shown in Figure 7.3, September may have five Saturdays one year but only four may appear in the following year’s calendar. A month with five Saturdays would tend to generate more sales than a month with only four Saturdays. You must also realize that there may be a variation in monthly sales because holidays occur at different times in different years. When Easter is in March, for example, the possibility of cold weather tends to reduce spring clothing sales. Business conditions will also affect future sales. When business is good, sales may increase or remain at the usual level. Sales frequently decline, however, when business conditions become unfavorable. Sales cannot be forecast with absolute accuracy; yet buyers must make educated guesses. One helpful guide is the average rate of increase or decrease in sales. Although a trend may be evident, you will need to study the reasons for the changes and the conditions that may affect future sales before making any adjustments in plans. A buyer has the following sales data available and wants to forecast sales for July. The illustration below shows how a sales forecast is developed:

PROBLEM ILLUSTRATION
Month April May June July Sales Last Year $50,000 $55,000 $59,000 $60,000 Sales This Year $55,000 $61,000 $64,000 ?

First, you would need to determine the percentage of sales increase or decrease for the first three months from the previous year by using the following formula:
Percent Increase or Decrease in Sales Difference in Sales from Last Year to This Year / Previous Year’s Sales

07_planning_p189-220

6/9/08

1:07 PM

Page 206

206 • Part III Planning and Controlling Merchandise Purchases
Your calculations for each month would be as follows:
April May June ($55,000 ($61,000 ($64,000 $50,000) / $50,000 $55,000) / $55,000 $59,000) / $59,000 10% increase 10.9% increase 8.5% increase

Although sales are currently ahead of last year for each month, the percentage decreased from May to June. You would then want to consider the direction of monthly sales during the current year. For example,
April to May May to June ($61,000 ($64,000 $55,000) / $55,000 $61,000) / $61,000 10.9% 4.9%

Sales growth has been declining. You would also want to consider the direction of sales growth last year during the same period by completing the following calculation:
June to July (Last Year) ($60,000 $59,000) /$59,000 1.7%

You could then conclude that the sales increase for July should be planned between 1.7 and 4.9 percent. At this point, you would want to consider other internal and external factors that might affect sales. If you feel that nothing drastically different will occur during the month, you might arbitrarily select a 3.3 percent increase because it is approximately midway between the two figures. Other conditions, such as more promotions from the competition or changes in your target market, could cause you to forecast the sales fluctuation at a higher or lower level.

Every effort should be made to ensure that your forecast is as accurate as possible because all other merchandising decisions are planned in relation to sales. Bad forecasts wreak havoc on any firm. If your sales forecast is in error, other decisions will be in error, too. Only by doing your homework, by researching your particular market segment, and by talking to customers will you improve the accuracy of your sales forecasts. Of course, you will never completely eliminate the uncertainty in forecasts, but you can reduce it to a manageable level. Once sales are forecast, you will need to plan inventory levels that will support the sales you have predicted.

07_planning_p189-220

6/9/08

1:07 PM

Page 207

Chapter 7 Forecasting

• 207

Planning Inventory Levels After you forecast sales for a specific period, you must then plan required inventory levels. Merchandise in stock must be sufficient to meet sales expectations while allowing for unanticipated demand. As a buyer, your goal will be to maintain an inventory assortment that will be sufficient to meet customer demand and yet be small enough to ensure a reasonable return on the store’s investment in inventory. There are several methods of inventory planning; however, the one most often used is the stock-to-sales ratio method. The stock-tosales ratio method involves maintaining inventory at a specific ratio to sales. Stock-to-sales ratios are calculated by dividing the dollar value of stock on hand by actual sales in dollars. For example, if a department had merchandise valued at $40,000 to begin the month of April and sales amounted to $20,000, the resulting stock-to-sales ratio would be 2. The stock-to-sales ratio is calculated using the following formula:
Stock-to-Sales Ratio Value of Stock / Actual Sales

For this example, the calculation would be made as follows:
Stock-to-Sales Ratio $40,000 / $20,000 2

The stock-to-sales ratio indicates the relationship between planned sales and the amount of inventory required to support those sales and is used to calculate planned BOM stock levels—the amount of stock required to begin the month. By multiplying the stock-to-sales ratio for the month by the planned sales for that month, you can determine the inventory level needed at the beginning of the month (BOM). Planned BOM inventory can be calculated using the following formula:
Planned BOM inventory Stock-to-Sales Ratio Planned Sales

Industrywide stock-sales ratios are available from sources such as the National Retail Federation and Dun & Bradstreet. Buyers can also calculate stock-to-sales ratios for their store or department based on previous stock and sales levels.

07_planning_p189-220

6/9/08

1:07 PM

Page 208

208 • Part III Planning and Controlling Merchandise Purchases

PROBLEM ILLUSTRATION
Using the stock-to-sales ratio method, calculate planned BOM inventory for November given the following information: Stock-to-Sales Ratio 1.2 Planned Sales for November
Planned BOM inventory Planned BOM Inventory

$19,000
Stock-to-Sales Ratio 1.2 $19,000 Planned Sales

$22,800

Therefore, using the stock-to-sales method of planning inventory, you would want to start the month of November with $22,800 worth of inventory.

Determining Stock Turnover Decisions you make in relation to sales forecasting and stock planning must yield a profit for your store. One measure of how accurately you balance sales to inventory levels is the stock turnover rate. How fast merchandise is sold, replenished, and sold determines the stock turnover for a store or department. The stock turnover rate is the number of times the average stock is sold during a given period and is calculated using the following formula:
Stock Turnover Rate Sales / Average Stock

The average stock for any period of time is the value of inventory at the beginning of the period, plus the value of inventory at predetermined periods during the period (such as end of the month), plus the value of inventory at the end of the period divided by the total number of stock listings. Buyers and management can determine a great deal about how well a store, department, or product classification is doing by knowing stock turnover rates. Like stock-to-sales ratios, turnover rates of comparable retailers can be determined from trade journals. Buyers can also use past sales data for their stores to calculate turnover. Turnover may be determined for any period of time; however, it usually refers to a one-year period.

07_planning_p189-220

6/9/08

1:07 PM

Page 209

Chapter 7 Forecasting

• 209

PROBLEM ILLUSTRATION
Calculate stock turnover given the following information: Total sales $60,000 Monthly inventory figures are listed below: Month Stock Level Jan 31 $8,000 Feb 28 $12,000 Mar 31 $14,000 Apr 30 $12,000 May 31 $10,000 June 30 $8,000 July 31 $10,000 Aug 31 $16,000 Sept 30 $18,000 Oct 31 $20,000 Nov 30 $30,000 Dec 31 $16,000 Jan 31 $6,000 Total Inventory $180,000 First, determine the average monthly inventory by dividing the total inventory in dollars by the number of inventory listings. Average stock would be $13,846 ($180,000 / 13). Next, calculate the stock turnover rate using the following formula:
Stock Turnover Rate Stock Turnover Rate Sales / Average Stock $60,000 / $13,846 4.3

Stock Turnover Rate

Therefore, the average stock for this department is sold and replenished 4.3 times during the year.

Stock turnover figures can also be used to plan both sales and stock levels using the following formula:
Sales Stock Turnover Rate Average Inventory

07_planning_p189-220

6/9/08

1:07 PM

Page 210

210 • Part III Planning and Controlling Merchandise Purchases
For example, if your goal is a 3.1 turnover rate and your average stock is $25,000, planned sales to reach this goal would be $77,500. The type of merchandise carried and store policies have an impact on stock turnover; however, almost every decision a retailer makes affects turnover. Less frequently purchased items, such as furniture and jewelry, have much lower turnover rates than items found in a grocery store. Store policies in regard to carrying wide assortments of merchandise in many sizes and colors will tend to cause low turnovers because some colors and sizes may not sell as well as others. For that reason, some stores carry only fast-selling colors and sizes to generate higher turnover rates. Higher stock turnover rates are usually an advantage to the store or department because rapid turnover of stock reduces the number and amount of markdowns required to move dated merchandise. Merchandise that is being replaced frequently always looks fresh and has much greater appeal to the customer. However, when attempting to increase turnover, you must also be concerned with increased expenses, such as advertising or more salaries for additional salespeople. Both might be required to generate more sales. In these situations, increased turnover may not result in increased profits. How can buyers improve stock turnover? You will need to examine sales and inventory information from your store or department. Slowturning merchandise may be due to several reasons:
• You may be attempting to carry too wide an assortment of merchandise. Offering a wide selection of styles, colors, and sizes often causes slow turnover rates. Merchandise may be remaining on your shelves for long periods of time to satisfy a few customers. • You may have selected the wrong merchandise. The goods that have been purchased may not be the ones that your customers want or need. Learn from such situations to improve your buying decisions the next time. • The merchandise may have been placed into stock too late. Delayed deliveries or late purchases may cause merchandise to arrive at your store after your customers have purchased the goods elsewhere. • The merchandise may be priced too high. Prices may have to be reduced to generate sales. • The store may not be conducting an effective sales promotion campaign for the product.

07_planning_p189-220

6/9/08

1:07 PM

Page 211

Chapter 7 Forecasting

• 211

There are other reasons for low turnover rates, but these five should be examined first. Once you have developed a sales forecast and determined required inventory levels for your store or department, you are ready to develop your buying plan, a step that is examined in detail in the next chapter.

FUTURE DIRECTION OF SALES FORECASTING
Quantitative skills of buyers must continue to improve. The increased use of computers will affect sales forecasting in the years ahead. Software packages will become easier to use and more versatile. Large amounts of internal and external data will become available and accessible quickly through computerized information systems, and better techniques should improve the overall accuracy of computer forecasts. But, more competitive conditions and more volatile markets will increase the difficulty of making accurate forecasts. The successful buyer will be the individual who can merge computer forecasts with his or her personal insights about the marketplace.

SUMMARY POINTS
• Forecasting involves predicting what customers are likely to do in the future. • Buyers use forecasting to predict what products customers will buy and how much they will purchase. • Buyers can make short- or long-term forecasts for specific products, customer groups, time periods, or store locations. • Long-term forecasts in volatile market conditions may be meaningless. • Developing forecasts stimulates planning by forcing the buyer to have a thorough understanding of market conditions and customers, promotes coordination with other members of the merchandising team, and provides a control mechanism by which to evaluate a buyer’s performance. • When developing sales forecasts, buyers must examine all internal and external forces that may affect sales. They collect both primary and secondary data. • Two of the most important forecasts that buyers make are sales and inventory levels.

07_planning_p189-220

6/9/08

1:07 PM

Page 212

212 • Part III Planning and Controlling Merchandise Purchases
• The key component of most sales forecasting is past sales records. • Buyers can also use stock-to-sales ratios and inventory turnover to estimate sales. • All other merchandising decisions are planned in relation to sales forecasts; therefore, if a sales forecast is in error, other decisions will be inaccurate too.

REVIEW ACTIVITIES
Developing Your Retail Buying Vocabulary Consult the Glossary if you did not add the following terms to your vocabulary.

Average stock BOM stock level External forces Forecasting Internal forces Long-term forecast

Market-basket analysis Sales forecast Short-term forecast Stock-to-sales ratio Stock turnover rate

Understanding What You Read
1. Identify the most important source of information when buyers develop sales forecasts. 2. Describe factors that will affect the accuracy of a sales forecast. 3. List and describe three benefits of forecasting sales. 4. Describe how buyers can increase their confidence in sales forecasting. 5. Identify economic conditions that would cause a buyer to project a decrease in sales. 6. Describe competitive conditions that would cause a buyer to project a decrease in sales. 7. Why do most buyers use secondary data before using primary data? 8. Describe the information provided in Survey of Buying Power. 9. List the steps needed to develop a sales forecast. 10. Describe the impact of a forecast that underestimates sales. 11. Describe the impact of a forecast that overestimates sales.

07_planning_p189-220

6/9/08

1:07 PM

Page 213

Chapter 7 Forecasting 12. List several internal and external factors that should be considered along with past sales records when forecasting sales. 13. Upon what will the accuracy of a sales forecast depend? 14. How will holidays affect monthly sales forecasts from one year to the next? 15. What would be one source for industrywide of stock-to-sales ratios? 16. What are the advantages of forecasting an increase in stock turnover rates? 17. How can computers be used to make sales forecasts?

• 213

Analyzing and Applying What You Read
1. As a buyer you must constantly make forecasts about consumer demand. What factors would cause the sale of men’s ties, cigarettes, disposable diapers, and American flags to increase or decrease? 2. You have developed a sales forecast for men’s suits that predicts a 20 percent increase in sales. Identify marketing strategies that could be utilized to reach that goal. 3. Sales last year during June were $20,000. Sales this June were $21,500. What percentage increase or decrease in sales has occurred? If this trend continues, what sales should be forecast for next June? 4. A firm wants to maintain an average stock of $25,000 every year. Last year, the firm had a 4.3 stock turnover rate. This year, management forecasts that stock turnover should increase to 4.5. By what dollar volume must sales increase for this forecasted turnover to occur?

Application Exercises 1. A department has the following sales data available. Forecast sales for May.
Sales Last Year $24,000 $26,000 $29,000 $33,000 Sales This Year $26,000 $27,000 $29,000 ?

February March April May

07_planning_p189-220

6/9/08

1:07 PM

Page 214

214 • Part III Planning and Controlling Merchandise Purchases
2. Use the following information to answer the questions below.
Last Year Monthly Sales January $10,000 February $12,000 March $14,000 April $18,000 May $19,000 June $18,000 July $19,000 August $21,000 September $23,000 October $26,000 November $31,000 December $30,000 Ending Inventory December 31

BOM Stock $20,000 $25,000 $30,000 $38,000 $40,000 $39,000 $41,000 $43,000 $47,000 $52,000 $60,000 $58,000 $28,000

a. b. c. d.

For the time period presented, what were total sales? What was the average inventory for the period? What was the annual stock turnover rate? Calculate last year’s stock-to-sales ratio for each of the months given. e. Next December, the buyer wants to maintain the current stock-to-sales ratio but reduce the BOM stock to $55,000. What sales must occur next year for this to occur?

Spreadsheet Skills
1. Complete the spreadsheet application problems in Chapter 7 of Making Buying Decisions: Using the Computer as a Tool to develop your skills with manipulating spreadsheets related to stock planning. 2. Use a spreadsheet to complete the Application Exercises above.

Internet Connection
1. On the Internet, go to www.weather.com and record the weather forecast (highs, lows, and weather conditions) for the next three days for your town or nearest city. Each day record the actual conditions.

07_planning_p189-220

6/9/08

1:07 PM

Page 215

Chapter 7 Forecasting Also, locate weather forecasts appearing in your local newspaper, on TV, or on the radio. Compare the forecasts and discuss their accuracy. Which source made the most accurate forecasts? Compare weather forecasting to making a short-term sales forecast. 2. On the Internet, go to www.farmersalmanac.com and compare weather forecasts made for your area over a year ago. Discuss how such longrange forecasts are made. How accurate were these forecasts? Compare long-term weather forecasting to making a sales forecast.

• 215

SNAPSHOT
Family Dollar: Fine-Tuning Its Retail Strategy Family Dollar Stores is a chain of general merchandise stores headquartered in Charlotte, North Carolina. The firm was started by Leon Levine, an iron-willed merchant who turned a single store into a national chain. Even though the company is bigger and more professionally managed today, a close inspection reveals that it is essentially the same business that Leon started in 1959. Family Dollar stores are still little stores stocked with a jumble of everything from T-shirts and toothpaste to cheap plastic toys. But management has found a retail strategy that works for the company. Management’s approach has been relatively simple—build no-frills stores in low-income neighborhoods, sell a variety of carefully selected merchandise at reasonable prices, and keep expenses low. Management’s goal is to ensure that the plan is executed properly. Today, Family Dollar operates about 6,200 stores in 44 states and supports them with nine strategically located distribution centers. In fact, 17.2 percent of the U.S. population lives within a mile of a Family Dollar store compared to 12.4 percent who live within a mile of a Dollar General store. Recently, Family Dollar stores have struggled in some areas, but remain a formidable competitor in the extreme-value retail sector. Although posting a 9.8 percent increase in sales to $6.4 billion in 2006, Family Dollar saw customer count and gross margin, as a percentage of sales, decline. On the plus side, the average transaction amount increased by 4.8 percent to $9.66. In the 1980s, Family Dollar kept growing, but performance turned

07_planning_p189-220

6/9/08

1:07 PM

Page 216

216 • Part III Planning and Controlling Merchandise Purchases
erratic. Profits dropped, then rebounded again. And new challenges arose not only from Wal-Mart, but also from Dollar General Stores, which were almost the mirror image of Family Dollar stores—neighborhood discount stores. In 1993, Family Dollar found its prices being undercut by big stores such as Wal-Mart and small stores such as Dollar General. Customer research found shoppers still liked the Family Dollar locations, merchandise, and convenience, but they did not like the prices. Customers were going to Family Dollar for sale-priced items and doing the rest of their shopping elsewhere. This was bad news for the company because it made little or no profit on these items. Management decided that to survive, prices would have to be cut. Experiments with price-cutting were conducted in a few stores in 1994 before the strategy went companywide in 1995. All prices were cut 10 to 15 percent. To cover these cuts, advertising was reduced, which had consisted primarily of direct mail circulars. Instead of 22 circulars as had been released previously, only 15 were produced. This move reduced advertising costs by $15.4 million. It was a risky strategy that depended on customers finding the stores on their own. Initial reports were not encouraging; same-store sales dropped 0.8 percent, and net income fell 8 percent. Consultants, however, said it would take 18 months for customers to catch on— which they did. Family Dollar seems to have found the right strategy for the urban market. Following extensive company research, the firm launched its “urban initiative” in 2005, a $25 million effort to strengthen its 1,400 urban stores. The initiative focused on improving hiring practices and training for managers, while strong efforts were made to tailor merchandise offerings to customers in urban markets rather than stocking the same items in all of its stores. As a result, same-store sales gains of 3.7 percent were achieved. Recent developments would indicate that the future is bright for Family Dollar. Today, two-thirds of U.S. households have shopped a dollar-store channel at least once this year.
Based on:
Dollar store markets: Family Dollar’s recipe for urban success. (2007, April 23). The Food Institute Report, 3. Family Dollar profits advance 6.1 percent. (2007, August 13). MMR, 5. Family Dollar rebounds as it improves key metrics. (2007, May 28). MMR, 6. Family Dollar works to increase relevance to customer base. (2007, April 23). Chain Drug Review, 72.

07_planning_p189-220

6/9/08

1:07 PM

Page 217

Chapter 7 Forecasting

• 217

TRENDWATCH
Using Weather Forecasts to Improve Retail Forecasts When retailers mention the weather, it is usually as a way to explain sales, particularly poor sales. All retailers know from experience that store traffic and sales are definitely related to weather, but very few retailers (estimated at less than 10 percent) keep any weather records at all. Although most retailers realize how dependent they are on weather, they also know how little they understand it. A check of weather forecasting services around the country reveals that few retailers are numbered among their clients. The idea that weather can be forecast early enough to affect buying plans and promotional calendars is a entirely new concept for many retailers. Yet, weather forecasting has tremendous implications for retailers, especially in climates where seasonal temperatures vary greatly. For instance, if buyers know that the weather is going to be unseasonably hot or cold, they can plan their purchases accordingly. Most retailers, however, do not consciously factor future weather into their business decisions. Typically, their business decisions merely assume the weather’s effect on their business will repeat from last year to the current year. In fact, weather is similar one year to the next only about one-third of the time—causing most retailers to have too much or too little seasonal merchandise on hand. At one time, Sears employed two meteorologists to assist with longrange planning, but discontinued the practice in 1979 due to budget cuts. Although the meterologoists did alert buyers to expedite emergency shipments of merchandise such as pumps to areas to be affected by flooding, their main function was to examine historical sales figures and extract the impact of weather. Today, one weather-forecasting service—Strategic Weather Services of Wayne, Pennsylvania—specializes in 12- and 15-month forecasts for retailers. And, according to audits by Ernst & Young, it has an accuracy rate of about 70 percent. The service also provides software that “deweatherizes” historic sales data, so that past effects of unusual weather are taken out of previous years’ sales. The software also integrates a weather forecast that adjusts future sales up or down. In doing so, weather information is used proactively—as a way to spot opportunities or improve planning. Strategic Weather Services has found many strong correlations

07_planning_p189-220

6/9/08

1:07 PM

Page 218

218 • Part III Planning and Controlling Merchandise Purchases
between temperature and product sales, such as an increase in coat or space heater sales when temperatures drop below normal. The firm’s research indicates that weather can affect 10 to 30 percent of the demand for weather-sensitive merchandise. For example, the service routinely identifies the best periods to run promotional events, resulting in sales increases of over 25 percent. It advised a national catalog showroom retailer that there would be unseasonably heavy rain in the company’s West Coast markets. The retailer altered its mix of humidifiers and dehumidifiers and increased dehumidifier sales from 10,000 units to 30,000 units. For retailers, the challenge of how to use the data still remains. Knowing that more snow is forecasted is great information. Determining how many additional pairs of skis to have in inventory is quite another matter. More understanding is needed on how to apply this information to various decision-making processes, including merchandise allocation and planning, merchandise delivery and markdown timing, and promotional scheduling. Weather influences consumer behavior, affecting store traffic and demand for specific products. Weather determines the beginning and ending points of a merchandise season; yet weather is a huge unknown. Retailers cannot control the weather, but they can control how it affects their businesses. Better planning based on weather forecasts can increase revenues and profits on weather-sensitive products.
Based on:
Circumventing the whims of weather. (1997, April). Stores, 83. Pasquallina, Marco. (1998, September). The weather as a business tool. American Demographics, 12–17. Reda, Susan. (1997, September). Apparel merchants: arming for fall with weather forecasting. Stores, 66–68. Rosenfeld, Jeff. (2001, January). Betting on the weather. Weatherwise, 1. Steinhauer, Jennifer. (1997, June 6). Retailers’ usual suspect is the weather. The New York Times, C3.

07_planning_p189-220

6/9/08

1:07 PM

Page 219

Chapter 7 Forecasting

• 219

TRENDWATCH
Market-Basket Analysis: How Do Customers Shop a Store? Sales data provide a view of what customers are purchasing but do not provide a view of how they are buying—in what combinations and in what quantities. One method that is being used to better determine how customers are buying is market-basket analysis. What is a market-basket analysis, and how do retailers use it? Marketbasket analysis is a term that describes data-mining solutions that identify the correlations among items in a customer’s shopping basket. Buyers and merchandisers can apply these categorical findings and respond to customer demand more effectively. It also helps them to make strategic planning and diagramming decisions that consider the types of items consumers are most likely to purchase during any one shopping trip. Their first step is to associate the products in the customers’ market basket with a product category. Through analysis, the percentage that each category represents is calculated. For example, if there are ten items in a market basket and five are cosmetic products, 50 percent of the basket is represented by the cosmetics category. Management predetermines a percentage to represent a customer in a particular purchase profile. For example, a retailer may determine that having more than 25 percent of items in a product category places a customer into the profile. In the preceding example, the customer would be categorized as belonging to a “Beauty Conscious” shopper profile. A market basket with more than 25 percent of the items related to photographic equipment and supplies would be categorized as a “Photographer,” and so on for each type of basket found. In essence, the analysis captures the key reason that the customer was in the store. The category becomes more than a product grouping; it becomes a shopper profile. For example, makeup, cotton balls, hair dye, and cologne may be in different product categories and in different physical locations within a store; yet, they are all part of the “Beauty Conscious” purchase profile. Customers’ behavior is measured objectively by what they purchase. By using this analysis, retailers are not trying to pin labels on customers; they are attempting to categorize shopping experiences and analyze how customers collectively behave while shopping. Once specific customer purchase profiles are identified, the next step is to provide information to decision makers, such as buyers, on

07_planning_p189-220

6/9/08

1:07 PM

Page 220

220 • Part III Planning and Controlling Merchandise Purchases
which they can act. A gross margin figure is calculated for each profile. This figure can then be used to base decisions about key areas of the business. For example, the data can provide information to the retailer about how to spend advertising dollars. “Beauty Conscious” may generate $15.24 in profits per market basket, whereas the “Photographer” generates only $2.55. Obviously, advertising dollars should be spent on the products that generate the most profit, but further study may show that the store is spending money on product categories that bring in the least profit. Another way in which market-basket analysis can be used is to make fact-based decisions about space allocation and product placement. Space allocation needs to be correlated with customers whose purchase profiles generate the most profit. Also, product placement decisions can be made by determining affinity purchases. This concept involves using market-basket analysis to determine what items are most frequently purchased with other items in the same market basket. For example, analysis may reveal that in the “Beauty Conscious” shopping basket, greeting cards were found 25 percent of the time and seasonal candy was found 16 percent of the time. Such data would indicate that sales of these two products would increase by moving them adjacent to a primary beauty care area. By using affinity analysis, a store can be moved from being a product-driven business to being a customer-driven business. Decisions may not always be made using the results of marketbasket analysis. For example, new fathers with no time to go out and socialize tend to pick up a six-pack of beer when buying disposable diapers. This is an exploitable relationship that is not obvious at first glance; however, it is doubtful that any retailer would stock diapers alongside beer. But, if acted on properly, effective market-basket analysis can bring increased sales, a stronger in-stock position, and increased customer satisfaction. Knowing the customer better leads to a more personal relationship between a retailer and the customer. As a retail buyer, you should realize that every customer transaction tells a story. Implementing a marketbasket analysis is one way to reveal the details of that story.
Based on:
Johnson, Walter E. and Tratensek, Dan M. (1999, October). Market-basket analysis: discover how customers shop your store. Do-It-Yourself Retailing, 48–54. Koslowsky, Sam. (2006, October 15). Match ’em up. Utilizing market-basket analysis techniques in marketing. Direct, 1. Market basket offers a new set of metrics. (2003, October 27). Chain Drug Review, 52. Nishi, Dennis. (2005, May). Market-basket mystery: what do beer and diapers have in common? For retailers, the answer could be powerful. Chain Store Age, 12A–13A.

Sign up to vote on this title
UsefulNot useful